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Student Housing - An Ace for Multifamily Investors?

Canada has grand plans to welcome more international students than ever in 2023. Good news you might say; students are good for the economy both now and in the future. What may be problematic is the dire situation students are faced with in trying to secure student accommodation in the locality of the campus.

Many students returning or arriving from their home countries this September, reported that finding an affordable and suitable student housing facility has become very difficult. The University campuses do not not have enough space to accommodate students, with limited supply pushing rents over the past year upwards by around 25%, making it even more difficult for new learners to settle in Canada.

At this point in time, the only suitable option left for many students is private, off-campus housing facilities in a less competitive market. Universities are also looking to the private sector intently to fix their problem.

The Why and What of the Student Housing Problem?

The essence of the problem is more and more students and the number of new student housing units not keeping pace with demand. Since 2000, the number of international students in Canada has increased steadily according to StatCan. Despite a ‘blip’ in 2020 due to the pandemic, the market rebounded quickly in 2021 and is expected to grow massively in the coming years given the welcoming government policy and recognition of the role that students play in the labor market both as students and then later as Permanent Residents. Ontario has the biggest challenge when it comes to student accommodation as it attracts more than half of all the international students coming to Canada.

With a 15% increase in total student beds becoming available through new development in the largest 24 student markets by 2025 (around 21,000 beds) and an estimated additional 364,000 students coming to Canada in 2023 alone, it’s not difficult to see the scale of the problem. Nevertheless, the government is plowing ahead with their admission targets and beds will be needed.

Brushing the housing issue under the carpet, Ottawa also announced recently that they would be lifting the cap on hours that can be worked off-campus by international students. On November 15, 2022 students enrolled in full-time studies will now not be limited to a 20-hour work week in a bid to bolster economic recovery and provide a greater pool of labor for those businesses still struggling.

Where are Developers Exploiting Opportunities in Ontario?

With the increasing student housing needs, various universities across Canada are now building new residences through partnerships with private developers. New campus housing under construction will provide more beds per student, although it will go little way in filling the gap completely…

  • The University of Waterloo had four new developments in progress this year, amounting to a combined 511 new student places;

  • The University of Windsor has plans to build a six-storey, 440 room complex, to be ready for the fall of 2025;

  • University of British Columbia (UBC) is hoping to increase its student beds from 12,000 to 17,300 by 2030 some of which will be additional ‘nano units’ that have been waitlisted from their inception;

  • Other universities such as University of Toronto are attempting to increase supply by leveraging existing land assets and using what they have creatively. These projects include 1000 new beds at George Street campus, 750 new beds at their Scarborough campus and over 4000 units at the Mississauga campus.

These signs and the public-private collaboration we see happening is encouraging, we can say without doubt that universities are indeed trying to meet the increasing needs of their students. But again, with the growing number of students on their way to Canada next year and developments taking time to reach fruition, the change is not happening fast enough.

What are the Benefits of Student Housing for Investors?

In the past, the main reluctance to invest into the student housing market was the transitory nature of the tenants; investors worried that in less than a year, tenants were moving on and dealing with this turnover was less than appealing. Given the economics of the situation now, this has become less of a concern as students even in second year are committing to several years rather than missing out or having to move further away from campus.

Of course, the other benefits of investing into student housing have remained steadfast over time and through the peaks and troughs of the economy…

1. Low risk

International students don’t have any credit rating in Canada but neither do they need it. They’re predominantly backed by wealthy parents and grandparents with deep pockets for whom money isn’t an object and so the risk of default and loss to an investor is low compared to other asset classes. There is no lack of backing, financial and otherwise for these newcomers.

2. Higher yields

Given the high disposable income of students and their families’ wishes for them to have the best experience of their time in higher education, student accommodation with attractive amenities can demand a premium rent. Facilities that enhance the student experience such as stores, gyms and theaters will attract students looking for that little extra from their first time away from home. Indeed, these amenities work hand in hand to maximize returns considering that a single student unit may house 6 or more people with shared kitchen and bathroom facilities - the rent is charged per student and not per unit which is even more appealing from investors’ perspective.

3. Low maintenance

Arguably, maintaining student accommodation is a little easier and less costly than a multifamily unit. Whilst they will expect a host of amenities, they don’t have to be luxury amenities; most will be happy with good Wi-Fi and a laundry and anything else is a bonus. Students may not have the same expectations as a family unit in regards to property standards and maintenance responsibilities along with associated costs can be lower in this respect.

4. Canada is already on catch up

There’s a huge underserved market in Canadian students and this is only set to get bigger. While Canada is attracting and intends to attract more and more international students, the student housing bed supply in other countries far outweighs Canada. US student housing supply equaled around 40% of student enrolments in the 2020-2021 year and this figure was around 35% for the UK. With Canada hovering around 15%, there is clearly huge potential for investment opportunities into student housing.

The Early Investor Wins Big

The other commercial real estate classes may be subdued in a recession but student housing has proved recession-proof time and time again. Increased rents and a captive market could be very good reasons to get into this sector but we see the main reason as timing; the market is still in its infancy in Canada and the investors who take time to understand its nuances will surely benefit greatly from getting in early on the competition.

Don’t hesitate to reach out to us with any questions on the student housing opportunity in the GTA.


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